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Business Opportunities for Sample Company A within Boston’s Large Pharma Market Executive Summary Jodi's PC

INTRODUCTION

Project Overview

Our project explored the business opportunities for Sample Company A within Boston’s large pharma market. Our goal was to understand the benefits potential clients gain from using your services and why a client would choose you over another vendor. By conducting primary and secondary research, we were able to understand your target market’s main business objectives, such as reducing costs and speeding up the drug discovery pipeline, which serve as major areas of opportunity for you. Additionally, we were able to identify the services offered by your competitors which allowed us to conduct a competitive analysis. This report provides insights into the large pharma industry nationally and locally, recent outsourcing trends, business opportunities for you, and recommendations on how to enter the market as a compound management (CM) partner of choice.

Research Process

To gain a deeper understanding of the large pharma industry, we approached our project as if we were a potential client. We determined the definition of a “large pharma company” to be a company with annual revenues over $20B. We wanted to know what the industry looks like nationally and locally with a specific focus on various trends occurring within the market. We found over fifty articles specific to the large pharma industry, with data relating to compound management, drug development, and outsourcing. This approach led us to look into various competitors, as if we were a potential client looking for a CM partner, in order to determine the services provided by your competition. This secondary research, combined with two primary interviews, allowed us to shape our recommendations that provide the framework for your continued growth within Boston’s large pharma market.

Industry Analysis

Pharma Industry

According to the Economist Intelligence Unit, the U.S. pharma industry is the largest in the world and it continues to experience steady growth. As noted in figure 1, in 2011 U.S. pharma sales are estimated to be $396B. As a whole, the pharma industry is a free market, where government agencies cannot negotiate with drug suppliers for lower prices. As a result, consumers in the U.S. pay more for prescription drugs than in any other country. However, as patents expire large pharma companies are losing profits on their blockbuster drugs due to the entry of generic drugs, which makes up 80% of drug sales based on volume. Similarly, due to recent trends in innovative pricing arrangements for biopharmaceuticals and tiered drug pricing, insurers are trending towards cutting costs for prescription drugs.[footnoteRef:1] [1: Economist Business Intelligence Unit, 2012]

Figure 1: U.S. Pharmaceutical Sales: 2006 - 2015

Source: The Economist Intelligence Unit, 2012

Outsourcing Trends

To stay competitive within the industry, large pharma companies are looking to increase their profit margins through outsourcing. In 2005, the total pharmaceutical outsourcing market was estimated at $33B and was expected to grow to $48B. Outsourcing can reduce overall costs by 30% - 50% and increase the pace of drug discovery processes.[footnoteRef:2] A survey conducted by Pharmaceutical Outsourcing showed that large pharma companies have increased the number of contract research and manufacturing organizations (CROs and CMOs) that they outsource to. These companies are outsourcing to vendors with the goal of reducing overall costs in three main areas: manufacturing; process development; and research and development.[footnoteRef:3] A significant portion of this outsourcing is sent to China and India; however, there is data to suggest that companies are looking to move these processes back to the U.S. as wages increase in foreign countries and regulations become more stringent. [2: Chaturvedi, 2005] [3: Langer, 2012]

Boston Market

There are over 240 biotech and pharma companies that have operations in Massachusetts. As noted in table 1, large pharma companies have a major presence in the state which has a significant on the Massachusetts economy:[footnoteRef:4] [4: Contract Pharma, 2012]

Table 1: Top Pharmaceutical Companies

Company Name	2011 Revenue
Pfizer	$57.7B
Novartis	$47.9B
Sanofi	$42.7B
Merck	$41.2B
GlaxoSmithKline	$35.5B
Astra Zeneca	$32.9B
Johnson & Johnson	$24.3B
Abbott	$22.4B

Source: Contract Pharma, July/August 2012

In an industry analysis of Boston’s large pharma market, MBC reports that the market has experienced trends toward innovation and cost reduction efforts, such as:

· Increased partnerships and merger and acquisition (M&A) deals to diversify product portfolios due to weak drug pipelines and expiring patents;

· Convergence of drugs, diagnostics, and medical devices to drive development;

· Focus on flexibility and cost reduction within operating models; and,

· Development of strategic partnerships to increase value to the organization and consumers. [footnoteRef:5] [5: Massachusetts Biotechnology Council, 2009]

Business Opportunities

We found the main business objectives of your potential clients to be cost reduction and improving operational efficiencies. A survey released by MBC in 2009 reported that large pharma companies are looking for new models that improve their operating cost structures and margins; outsourcing opportunities to reduce costs in research and development; and, streamlined processes to expand manufacturing and R&D functions within the state. [footnoteRef:6] Additionally, the results of an industry-wide survey conducted by Pharma IQ of 4,000 compound management specialists shows that there are three primary concerns within their department: the quality of samples; management of sample data; and the need to construct new libraries to support research requirements. [6: Massachusetts Biotechnology Council, 2009]

Figure 2: Client Compound Management Needs

Source: Pharma IQ, May 2012

The survey revealed that quality perseverance, safeguarding sample quality, and introducing an effective identification and tracking system are key priorities for compound managers and their departments.[footnoteRef:7] [7: Pharma IQ, 2012]

The largest area of opportunity for you within the large pharma market is during the M&A transition phase. Large pharma companies have the human and financial capital available for in-house sample management and procurement. However, large pharma companies will continue to acquire biotech companies with rich pipeline potential for product diversification and innovation. To avoid internal conflict and disruption of workflows, large pharma companies look for CM partners, such as yourself, that are neutral parties during the transition.[footnoteRef:8] As companies continue to expand operations domestically and internationally, there is also a need to keep some compounds close to new satellite locations. [8: Wigglesworth & Wood, 2012]

From the client perspective, there are a few conditions that will make outsourcing CM successful for an organization. First and foremost, it must provide cost savings for the client. Additionally, it must increase their operational efficiency and optimize their resource allocation which enables the client to work on other projects. Lastly, relationships with partners like yourself must be built on quality; customer service; scientific knowledge; reputation; and, cost effectiveness. According to Pharmaceutical Outsourcing, there are five key competencies clients require from their CM partners: [footnoteRef:9] [9: Boucharens, 2010]

· Privacy protection for samples

· Robust chain of custody procedures for samples

· Appropriate conditions for sample storage and disposal

· Procedures to comply with regulations

· Sample coding

Competitive Analysis

We found over 25 companies that provide compound management services to the pharmaceutical industry. To conduct a competitive analysis, we identified four major competitors that provide service offerings similar to yours. Table 2 provides a snapshot of your competition with their annual sales revenue and services provided, as stated on their websites.

Table 2: Competitor Snapshot

Company	2011 Sales	Company Snapshot
Frontier Scientific Logan, UT	$7.1M	FSI has a reputation for high purity and fast delivery. FSI has a R&D department focusing on new generation compounds and custom synthesis. They can provide customers with unique compounds that are not available on a commercial basis anywhere else. FSI provides contract research services and compounds at competitive rates.[footnoteRef:10] [10: Frontier Scientific, Inc., 2012]
Enzo Life Sciences Farmingdale, NY	$4.4M	Enzo Life Sciences identifies, synthesizes and commercializes known bioactives. They have a catalog of over 3,000 stand-alone small molecules and a unique collection of small molecules including inhibitors, activators, and inducers which can be ordered individually and in any volume. The library collections are supplied with complete documentation for integration into a client’s compound database. In addition, they offer a custom library solution for hard-to-source compounds. Enzo boasts having stringent quality control with state-of-the-art technology.[footnoteRef:11] [11: Enzo Life Sciences, 2012]
AsisChem, Inc. Watertown, MA	$1.1M	AsisChem maintains an extensive catalog of building blocks and screening compounds which can be supplied within weeks. They work on custom synthesis and design libraries for screening. They have a small molecule collection designed as a universal screening library, which is used for primary screening against a wide range of biological targets, including those where no structural information is available providing their customers with diverse and novel drug-like small molecules. AsisChem serves the pharmaceutical and biotechnology industries in the area of new drug research and discovery. 55% of AsisChem's current customers are pharmaceutical and biotechnology companies. They are also a preferred partner for dozens of universities and non-profit institutes.[footnoteRef:12] [12: AsisChem, Inc., 2012]
Hamilton Storage Hopkington, MA	Privately held; no sales data	Hamilton is a leader in the design and manufacture of liquid handling, process analytics, robotic workstations and automated storage solutions which is ISO 9001 certifed. They are introducing the next generation of ultra-low temperature biological sample storage systems, which protects samples from warming events, ensuring maximum sample quality is maintained.[footnoteRef:13] [13: Hamilton Storage, 2012]

To conduct a competitive analysis, we compared your services offerings against your competitors to those potential clients in the Boston area would look for in a CM partner:

· Customer Service

· Privacy protection for samples; quality and assurance controls

· Appropriate conditions for sample storage

· Online inventory management and sample coding

· Proximity to Greater Boston / Kendall Square

We found that an area of opportunity for you lies in differentiating your service offerings from your competitors. As seen in figure 3, there is a lot of overlap in service offerings between you and your competitors. In order to gain market share in this area, you will need to set yourself apart from your competitors.

Figure 3: Sample Company A Competitive Analysis

Recommendations

To enter Boston’s large pharma market as a preferred partner for CM services, we recommend that you focus on differentiating your service offerings from your competitors. This can be done through your online and print collateral. Additionally, building relationships with decision makers within large pharma companies will be beneficial as you will be able to further understand what their business objectives are and provide innovative solutions to them. Trust is an important factor in the CM industry and building business relationships at every level of the organization is critical. By developing these relationships, you will gain inside information regarding hot biotech companies that are likely to be acquired by large pharma companies. This will give you an edge against your competitors. Lastly, you can build visibility and network with potential clients by attending and speaking at conferences such as the Compound Management & Integrity Summit. Based on our findings, we believe that implementing the recommendations outlined above will leverage your core business competencies and enable you to enter Boston’s large pharma market as a CM partner offering unique and high-quality services to clients.

Bibliography AsisChem, Inc. (2012). Screening Compounds. Retrieved November 28, 2012, from AsisChem, Inc.: http://www.asischem.com/screeninglib.aspx Boucharens, P. S. (2010, November 1). Outsourcing Compound Inventory Trend or Real Benefits? Retrieved November 8, 2012, from Pharmaceutical Outsourcing: http://www.pharmoutsourcing.com/Featured-Articles/37498-Outsourcing-Compound-Inventory-Trend-or-Real-Benefits/ Chaturvedi, S. (2005). Outsourcing in Pharmaceutical Industry. New York, NY, United States of America. Retrieved November 26, 2012, from http://www.bionity.com/en/whitepapers/49803/outsourcing-in-pharmaceutical-industry.html Contract Pharma. (2012, July/August). Top 20 Pharma Report. (G. Roth, Editor) Retrieved October 8, 2012, from Contract Pharma: http://www.contractpharma.com/issues/2012-07/view_features/top-20-pharma-report/ Enzo Life Sciences. (2012). Compound Libraries. Retrieved December 5, 2012, from Enzo Life Sciences: http://www.enzolifesciences.com/welcome/compound-libraries/ Frontier Scientific, Inc. (2012). About FSI. Retrieved December 5, 2012, from http://www.frontiersci.com/about.html Hamilton Storage. (2012). About Hamilton Storage Technologies. Retrieved December 6, 2012, from Hamilton Storage: http://www.hamilton-storage.com/topnav/about-us/ Langer, E. (2012, September 17). Biopharmaceutical Industry Outsourcing Trends: China and India Continuing Full-court Press. Pharmaceutical Outsourcing, 13. Rockville, MD, USA. Retrieved November 26, 2012, from http://www.pharmoutsourcing.com/Featured-Articles/121110-Biopharmaceutical-Industry-Outsourcing-Trends-China-and-India-Continuing-Full-court-Press/ Massachusetts Biotechnology Council. (2009, April). Strategic Outlook for 2015 and Strategic Plan. Retrieved November 19, 2012, from Massachusetts Biotechnology Council: http://www.massbio.org/writable/files/2015_Report/full_2015_report_for_distribution.pdf Pharma IQ. (2012, May 21). Expanding Sample Libraries Tops the Wish List for Compound and Sample Managers. Retrieved November 8, 2012, from Pharma IQ: http://www.pharma-iq.com/pre-clinical-discovery-and-development/articles/expanding-sample-libraries-tops-the-wish-list-for/ The Economist Intelligence Unit. (2012, June 1). USA: Healthcare and Pharmaceuticals Report. New York, NY, USA. Retrieved Novembe 26, 2012, from http://www.eiu.com/index.asp?layout=ib3Article&article_id=1869250771&country_id=1530000153&pubtypeid=1152462500&industry_id=&category_id=775133077 Wigglesworth, M., & Wood, T. (2012). Management of Chemical and Biological Samples for Screening Applications. Weinheim, Germany: Wiley-VCH. Retrieved November 8, 2012, from http://books.google.com/books?id=Hd6HRB4AWf8C&pg=PA265&dq=sample+library+pharma&source=gbs_toc_r&cad=4#v=onepage&q&f=false